REGULATORY RELIEF BILL PASSED…WHAT’S THE IMPACT?
While the President signed the regulatory relief bill many have been anxiously awaiting, it stops well short of a repeal of the Dodd-Frank Act trumpeted by the GOP on the campaign trail. The Economic Growth, Regulatory Relief and Consumer Protection Act was introduced in the Senate in November 2017, reported with amendments to the Committee on Banking, Housing, and Urban Affairs in December, an amended version passed in the Senate in March, and the amended Senate bill was passed/agreed to in the House on May 22, 2018 by a 258 to 159 vote.
There are several distinct provisions in this bill, which is designed to “right size” various aspects of the Dodd-Frank Act that disproportionately burdened community financial institutions. Those that relate specifically to consumer protection regulations we deal with on a daily basis include:
1. Automatic QM status for loans held in portfolio.
2. Exemption from new HMDA data fields.
3. Appraisal exemption for certain rural loans.
4. Escrow exemption.
5. TRID waiting period exemption for second offers with lower APR.
One of the provisions of the bill that community banks were hoping for is the elevated threshold of 500 for closed-end dwelling-secured mortgage loans triggering HMDA reporting under the new rule. Well, we got it! Hip hip hoo…wait, what…??
It’s not the clean break many thought it might be. The new threshold will allow banks originating fewer than 500 closed-end dwelling-secured mortgage loans in each of the prior two calendar years to utilize an exemption code for specific fields (fields not yet fully determined), not eliminate HDMA reporting altogether. Meanwhile, we’ve all jumped through the hoops, both intensive and expensive, of training compliance and lending staff, LOS and HMDA software programming, drafted expansive new procedures and chewed fingernails down to the nubs to be compliant with the significantly expanded HMDA data collection and reporting under the new rule. It’s almost like a rite of passage now! We got the T-shirt! Now we change?
Keep in mind that the implementing regulation, Regulation C, will have to be amended accordingly, with considerable clarifications and commentary. The Bureau has floated an end-of-summer deadline for additional guidance.
You should also be aware that this particular regulatory relief provision does not apply if your institution received a “needs to improve” CRA rating during each of its two most recent examinations or a rating of “substantial noncompliance” on its most recent CRA exam.
The HMDA reprieve is said to affect nearly 85% of all banks yet does not have a significant impact on the mortgage industry, as most mortgages are made by large institutions and non-bank lenders. Two years from now the CFPB (or BCFP as it now will be called) will conduct a “lookback” of the HMDA data collected and then issue a report by the end of year three to the Senate Banking Committee and House Financial Services Committee with the results of the study. Could we be right back where we started in a few years? Remember, the HELOC threshold of 500 is considered “temporary”.
Appraisal Exemption for Real Estate Located in Rural Areas
Don’t get too excited. This is an extremely narrow exemption. Many of you probably won’t be able to thread this needle. This exemption is designed to help institutions particularly hampered by the growing shortage of available appraisers in rural areas.
An appraisal will no longer be required for a federally related transaction involving real property or an interest in real property if the property is located in a “rural” area as defined in Reg Z by Section 1026.35(b)(2)(iv)(A). However, there are certain additional caveats that have to be met for this exemption to apply:
- Not later than 3 days after the date on which the Closing Disclosure is given to the consumer, the mortgage originator or its agent, directly or indirectly—
- has contacted not fewer than 3 State certified appraisers or State licensed appraisers, as applicable, on the mortgage originator’s approved appraiser list in the market area in accordance with part 226 of title 12, Code of Federal Regulations; and
- has documented that no State certified appraiser or State licensed appraiser, as applicable, was available within 5 business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments, as documented by the mortgage originator or its agent;
the transaction value is less than $400,000;
the loan is not a high-cost mortgage (HOEPA); and
the mortgage originator is subject to oversight by a Federal financial institution regulatory agency.
Additionally, the exemption does not apply if a Federal financial institution regulatory agency requires an appraisal under section 225.63(c), 323.3(c), 34.43(c), or 722.3(e) of title 12, Code of Federal Regulations.
If you would want to sell, assign or transfer a mortgage without an appraisal under the terms of this exemption, you can only do so if:
- The loan is sold, assigned, or otherwise transferred to another person regulated by a Federal financial institutions regulatory agency, so long as the loan is retained in portfolio by the person;
- the sale, assignment, or transfer is pursuant to a merger of the mortgage originator with another person or the acquisition of the mortgage originator by another person or of another person by the mortgage originator; or
- the sale, loan, or transfer is to a wholly owned subsidiary of the mortgage originator, provided that, after the sale, assignment, or transfer, the loan is considered to be an asset of the mortgage originator for regulatory accounting purposes.
Simplified QM status for institutions under $10 billion in assets
Loans that an institution originates and retains in portfolio, with similar “no risky features” limitations as defined in the initial QM rules, will be automatically covered under the QM safe harbor for institutions with less than $10 billion in assets. You must still document debt, income and financial resources of the consumer, but you will not be required to comply with the stringent ability-to-repay regimen of Appendix Q.
Mandatory Escrow Exemption for HPMLs
The thresholds for exemptions to the Truth-in-Lending escrow rules were adjusted to increase the asset size of the creditor from $2 billion to $10 billion and reduce the volume threshold for first-lien mortgages on principal dwellings in the preceding calendar year from 2,000 to 1,000. Refer to Reg Z, Section 1026.35(b)(2)(iii) for additional limitations – as only the thresholds changed under the new bill.
TRID: No Wait for Lower Rate
If a creditor extends to a consumer a second offer of credit with a lower annual percentage rate, the transaction may be consummated without regard to the mandatory 3-day waiting period required when the APR becomes “inaccurate” with respect to the second offer.”
LASTLY…EXAM CYCLES ADJUSTED
You will be pleased to know that the supervisory examination cycles are also being adjusted so that institutions that are well-managed and well-capitalized with assets up to $3 billion will be on an 18-month exam cycle. Currently the threshold is $1 billion.